Employee vs. Independent Contractor
According to the IRS, in determining whether an individual is an employee or an
independent contractor, questions must be asked in the following three
categories: (1) behavioral control, (2) financial control, (3) and the type of
relationship of the parties.
1. Instruction: Will you instruct the individual (or have the right to
instruct) on when, where, and how the work will be done?
An employee must comply with instructions about when, where, and how
to work. Even if no instructions are given, the control factor is present if
the employer has the right to give instructions.
2. Training: Will you train or provide training to the individual on
performing services in a particular manner?
An employee is trained to perform services in a particular manner.
Independent Contractors ordinarily use their own methods and receive no
training from the purchaser of their services.
3. Integration: Are the services this individual will be providing a part of
the business operations?
An employee’s services are integrated into the business operations
because the services are important to the success or continuation of the
business. This shows that the employee is subject to direction and
4. Service rendered personally: Will the individual be personally
performing the services?
An employee renders services personally. This shows that the employer is
interested in the methods as well as the results. An Independent
Contractor is hired to provide a service and often the employer does not
care who performs the job.
5. Hiring assistant: Will you be hiring, supervising, and paying others to
assist the individual?
An employee works for an employer who hires, supervises and pays
assistants. An Independent Contractor hires, supervises, and pays
assistants under a contract that requires him/her to provide materials and
labor, and to be responsible only for the result.
6. Continuing relationship: Will this be an ongoing relationship?
An employee has a continuing relationship with an employer. A
continuing relationship may exist where work is performed at frequently
recurring although irregular intervals.
7. Set hours of work: Will you be setting the individual’s hours of work?
An employee has set hours of work established by an employer. An
Independent Contractor is the master of his/her own time.
8. Full-time work: Will the individual be working only for you?
An employee normally works full time for an employer. An Independent
Contractor can work when and for whom he/she chooses.
9. Work done on premises: Will the individual work on the premises or at
a location you designate?
An employee works on the premises of an employer, or works on a route
or at a location designated by an employer.
10. Order or sequence set: Will you define the order or sequencing of the
An employee must perform services in the order or sequence set by an
employer. This shows that the employee is subject to direction and
11. Oral or written reports: Will the individual be asked or required to
submit a report to you describing his/her actions?
An employee submits reports to an employer. This shows that the
employee must account to the employer for his/her actions.
12. Payments: Will you be paying the individual by the hour, week or
An employee is paid by the hour, week or month. An Independent
Contractor is paid by the job or on a straight commission.
13. Expenses: Will you be paying any expenses for the individual?
An employee’s business and travel expenses are paid by an employer.
This shows the employee is subject to regulation and control.
14. Tools and materials: Will you be furnishing the individual with tools,
materials, equipment, etc?
An employee is furnished significant tools, materials, and other equipment
by an employer.
15. Investment: Will the individual have any investment in the facilities
he/she will be using?
An Independent Contractor has a significant investment in the facilities
he/she uses in performing services for someone else.
16. Profit and loss: Can the person performing the services realize either a
profit or a loss?
Independent Contractors can earn a profit or suffer a loss because they:
hire, direct, and pay assistants; have own office, equipment, materials, or
facilities; have continuing or reoccurring liabilities; have agreed to perform
specific jobs for agreed upon prices; their performance affects their
17. Works for more than one person or firm: Can the person providing
services work for a number of firms at the same time?
An Independent Contractor is free to provide services to multiple
unrelated clients at the same time.
18. Offers services to general public: Does the individual offer his/her
services to the general public?
An Independent Contractor makes his/her services available to the
general public. “Making services available” may include holding a business
license, or having advertising and telephone directory listings.
19. Right to fire: Have you given up your right to fire the individual?
An employee can be fired by an employer. An Independent Contractor
cannot be fired so long as he/she produces a result that meets the
specifications of the contract.
20. Right to quit: If the individual quits, will he/she incur a liability for work
An employee can quit his/her job at any time without incurring liability.
An Independent Contractor usually agrees to complete a specific job and
is responsible for its satisfactory completion, or is legally obligated to
make good for failure to complete it.